Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
(in
thousands, except per share amounts)
|
|
Revenues
|
$
37,903
|
$
37,835
|
$
112,571
|
$
110,193
|
|
Cost
of goods sold
|
19,498
|
20,211
|
57,841
|
57,789
|
|
Gross
profit
|
18,405
|
17,624
|
54,730
|
52,404
|
|
Operating
expenses:
|
|
|
|
|
|
Selling
|
1,691
|
1,471
|
5,303
|
4,871
|
|
General
and administrative
|
4,086
|
3,613
|
12,390
|
11,442
|
|
Research
and development
|
1,149
|
1,564
|
4,056
|
4,576
|
|
|
6,926
|
6,648
|
21,749
|
20,889
|
|
Operating
income
|
11,479
|
10,976
|
32,981
|
31,515
|
|
|
|
|
|
|
|
Interest
and dividend income
|
287
|
106
|
806
|
315
|
|
Other
income (expense), net
|
--
|
1
|
1
|
(309
)
|
|
|
287
|
107
|
807
|
6
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
11,766
|
11,083
|
33,788
|
31,521
|
|
Provision
for income taxes
|
(3,795
)
|
(3,469
)
|
(5,841
)
|
(9,511
)
|
|
|
|
|
|
|
|
Net
income
|
$
7,971
|
$
7,614
|
$
27,947
|
$
22,010
|
|
|
|
|
|
|
|
Net
income per basic share
|
$
4.30
|
$
4.17
|
$
15.16
|
$
12.07
|
|
Weighted
average basic shares outstanding
|
1,852
|
1,825
|
1,844
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per diluted share
|
$
4.29
|
$
4.10
|
$
15.06
|
$
11.86
|
|
Weighted
average diluted shares outstanding
|
1,857
|
1,858
|
1,856
|
1,856
|
|
|
|
|
|
|
|
Dividends
per common share
|
$
1.20
|
$
1.05
|
$
3.30
|
$
2.85
|
The accompanying notes are an integral part of these
statements.
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
$
7,971
|
$
7,614
|
$
27,947
|
$
22,010
|
|
Other Comprehensive
Income (Loss)
|
|
|
|
|
|
Unrealized
income (loss) on investments, net of tax expense (benefit) of $23,
($273), $58 and ($445)
|
43
|
(506
)
|
109
|
(827
)
|
|
|
|
|
|
|
|
Comprehensive
Income
|
$
8,014
|
$
7,108
|
$
28,056
|
$
21,183
|
The accompanying notes are an integral part of these
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
Cash and cash
equivalents
|
$
20,995
|
$
20,022
|
|
Short-term
investments
|
38,959
|
24,080
|
|
Accounts
receivable
|
19,585
|
17,166
|
|
Inventories
|
29,924
|
29,015
|
|
Prepaid expenses
and other current assets
|
3,001
|
3,181
|
|
|
112,464
|
93,464
|
|
|
|
|
|
Long-term
investments
|
10,112
|
9,945
|
|
|
|
|
|
Property, plant and
equipment
|
167,148
|
160,413
|
|
Less accumulated
depreciation and amortization
|
100,630
|
95,148
|
|
|
66,518
|
65,265
|
|
|
|
|
|
Other assets and
deferred charges:
|
|
|
|
Patents
|
1,808
|
1,929
|
|
Goodwill
|
9,730
|
9,730
|
|
Other
|
1,494
|
1,609
|
|
|
13,032
|
13,268
|
|
|
|
|
|
Total
assets
|
$
202,126
|
$
181,942
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued liabilities
|
$
10,382
|
$
8,663
|
|
Accrued income and
other taxes
|
2,312
|
410
|
|
|
12,694
|
9,073
|
|
|
|
|
|
Line of
credit
|
--
|
--
|
|
|
|
|
|
Other non-current
liabilities
|
10,981
|
9,881
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Common stock, par
value $0.10 per share; authorized10,000 shares, issued 3,420
shares
|
342
|
342
|
|
Paid-in
capital
|
48,360
|
37,448
|
|
Accumulated other
comprehensive (loss) income
|
(365
)
|
(474
)
|
|
Retained
earnings
|
261,777
|
239,946
|
|
Treasury
shares,1,584 at September 30, 2017 and 1,596 at December 31, 2016,
at cost
|
(131,663
)
|
(114,274
)
|
|
Total
stockholders’ equity
|
178,451
|
162,988
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
202,126
|
$
181,942
|
The accompanying notes are an integral part of these financial
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
(In
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income
|
$
27,947
|
$
22,010
|
|
Adjustments
to reconcile net income tonet cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
6,458
|
6,655
|
|
Deferred
income taxes
|
1,002
|
(116
)
|
|
Stock-based
compensation
|
1,240
|
1,323
|
|
Bond
impairment
|
--
|
345
|
|
Net change in
accrued interest, premiums, and discounts
|
|
|
|
on
investments
|
(167
)
|
(5
)
|
|
Other
|
(2
)
|
--
|
|
|
36,478
|
30,212
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(2,419
)
|
(3,504
)
|
|
Inventories
|
(909
)
|
(285
)
|
|
Prepaid
expenses
|
180
|
754
|
|
Other
non-current assets
|
115
|
(633
)
|
|
Accounts
payable and accrued liabilities
|
1,719
|
265
|
|
Accrued
income and other taxes
|
1,902
|
1,405
|
|
Other
non-current liabilities
|
39
|
195
|
|
|
37,105
|
28,409
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Property,
plant and equipment additions
|
(7,590
)
|
(8,836
)
|
|
Purchase
of investments
|
(46,712
)
|
(21,798
)
|
|
Proceeds
from sale of investments
|
--
|
210
|
|
Proceeds
from maturities of investments
|
32,000
|
5,000
|
|
|
(22,302
)
|
(25,424
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Shares tendered for employees’ withholding
taxes on
stock-based
compensation
|
(7,735
)
|
(1,112
)
|
|
Purchase
of treasury stock
|
--
|
(1,276
)
|
|
Dividends
paid
|
(6,095
)
|
(5,196
)
|
|
|
(13,830
)
|
(7,584
)
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
973
|
(4,599
)
|
|
Cash
and cash equivalents at beginning of period
|
20,022
|
28,346
|
|
Cash
and cash equivalents at end of period
|
$
20,995
|
$
23,747
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
Income
taxes
|
$
2,411
|
$
7,568
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
Non-cash
effect of stock option exercises
|
$
10,237
|
--
|
The accompanying notes are an integral part of these financial
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
|
Balances, January
1, 2017
|
1,824
|
$
342
|
1,596
|
$
(114,274
)
|
$
37,448
|
$
(474
)
|
$
239,946
|
$
162,988
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
27,947
|
27,947
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
109
|
|
109
|
|
Stock-based
compensation transactions
|
46
|
|
(46
)
|
583
|
10,912
|
|
|
11,495
|
|
Shares
surrendered in stock transactions
|
(34
)
|
|
34
|
(17,972
)
|
|
|
|
(17,972
)
|
|
Dividends
|
|
|
|
|
|
|
(6,116
)
|
(6,116
)
|
Balances,
September 30, 2017
|
1,836
|
$
342
|
1,584
|
$
(131,663
)
|
$
48,360
|
$
(365
)
|
$
261,777
|
$
178,451
|
The accompanying notes are an integral part of these financial
statements
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of Atrion
Corporation and its subsidiaries have been prepared in accordance
with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the
United States for complete financial statements. In the opinion of
management, these statements include all normal and recurring
adjustments necessary to present a fair statement of our
consolidated results of operations, financial position and cash
flows. Operating results for any interim period are not necessarily
indicative of the results that may be expected for the full year.
Preparation of the Company’s financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts in the financial statements and
notes. Actual results could differ from those estimates. This
Quarterly Report on Form 10-Q should be read in conjunction with
the Company’s consolidated financial statements and notes
included in its Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2016 ("2016 Form 10-K/A"). References
herein to "Atrion," the "Company," "we," "our," and "us" refer to
Atrion Corporation and its subsidiaries.
Inventories
are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out method. The following table details
the major components of inventories (in thousands):
|
|
|
|
|
|
|
|
|
Raw
materials
|
$
13,334
|
$
12,984
|
|
Work in
process
|
7,174
|
6,230
|
|
Finished
goods
|
9,416
|
9,801
|
|
Total
inventories
|
$
29,924
|
$
29,015
|
The
following is the computation for basic and diluted income per
share:
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
|
|
|
|
|
|
|
|
(in
thousands, except per share amounts)
|
|
Net
income
|
$
7,971
|
$
7,614
|
$
27,947
|
$
22,010
|
|
Weighted average
basic shares outstanding
|
1,852
|
1,825
|
1,844
|
1,823
|
|
Add: Effect of
dilutive securities
|
5
|
33
|
12
|
33
|
|
Weighted average
diluted shares outstanding
|
1,857
|
1,858
|
1,856
|
1,856
|
|
Earnings
per share:
|
|
|
|
|
|
Basic
|
$
4.30
|
$
4.17
|
$
15.16
|
$
12.07
|
|
Diluted
|
$
4.29
|
$
4.10
|
$
15.06
|
$
11.86
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Incremental shares
from stock options and restricted stock units were included in the
calculation of weighted average diluted shares outstanding using
the treasury stock method. Dilutive securities representing
447
and 41 shares of
common stock for the quarters ended September 30, 2017 and 2016,
respectively, were excluded from the computation of weighted
average diluted shares outstanding because their effect would have
been anti-dilutive.
As of
September 30, 2017, we held investments in certificates of deposit,
commercial paper, corporate bonds and equity securities that are
required to be measured for disclosure purposes at fair value on a
recurring basis. The certificates of deposit, commercial paper and
corporate bonds are considered held-to-maturity and are recorded at
amortized cost in the accompanying consolidated balance sheet. The
equity securities are considered available for sale and recorded at
fair value in the accompanying consolidated balance sheet with the
unrealized gains and losses recorded as a component of other
comprehensive income. These investments are considered Level 2
investments. We consider as current assets those investments which
will mature in the next 12 months including interest receivable on
the long-term corporate bonds. The remaining investments are
considered non-current assets including our investment in equity
securities we intend to hold longer than 12 months.
The fair values of these Level 2
investments were estimated using recently executed transactions and
market price quotations.
The amortized cost and fair value
of our investments, and the related gross unrealized gains and
losses, were as follows as of the dates shown below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 30, 2017:
|
|
|
|
|
|
Short-term
Investments:
|
|
|
|
|
|
Certificates of
Deposit
|
$
9,096
|
$
--
|
$
(1
)
|
$
9,095
|
|
Commercial
Paper
|
$
29,833
|
$
62
|
$
(4
)
|
$
29,891
|
|
Corporate
bonds
|
$
30
|
$
--
|
$
--
|
$
30
|
|
|
|
|
|
|
|
Long-term
Investments
|
|
|
|
|
|
Corporate
bonds
|
$
5,000
|
$
--
|
$
(36
)
|
$
4,964
|
|
Equity
investments
|
$
5,675
|
$
--
|
$
(563
)
|
$
5,112
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016:
|
|
|
|
|
|
Short-term
Investments:
|
|
|
|
|
|
Certificates of
Deposit
|
$
24,000
|
$
9
|
$
--
|
$
24,009
|
|
Corporate
bonds
|
$
80
|
$
--
|
$
--
|
$
80
|
|
|
|
|
|
|
|
Long-term
Investments
|
|
|
|
|
|
Corporate
bonds
|
$
5,000
|
$
--
|
$
(287
)
|
$
4,713
|
|
Equity
investments
|
$
5,675
|
$
--
|
$
(730
)
|
$
4,945
|
The
above long-term corporate bonds represent an investment in one
issuer at September 30, 2017. The unrealized loss for this
investment relates to a rise in interest rates which resulted in a
lower market price for that security. This investment has not been
in a loss position for more than 12 months.
The
certificates of deposit have maturities from greater than two weeks
to less than eight months. The commercial paper securities have
maturities from two days to less than eleven months. The corporate
bonds will mature in 44.5 months.
Purchased
patents and license fees paid for the use of other entities’
patents are amortized over the useful life of the patent or
license. The following tables provide information regarding patents
and licenses (dollars in thousands):
|
|
|
Weighted Average
Original Life (years)
|
|
|
Weighted Average
Original Life (years)
|
|
|
|
15.67
|
$
13,840
|
$
12,032
|
15.67
|
$
13,840
|
$
11,911
|
Aggregate
amortization expense for patents and licenses was $30,000 and
$63,000 for the three months ended September 30, 2017 and 2016,
respectively, and $121,000 and $188,000 for the nine months ended
September 30, 2017 and 2016, respectively.
Estimated future
amortization expense for each of the years set forth below ending
December 31 is as follows (in thousands):
|
2018
|
$119
|
|
2019
|
$119
|
|
2020
|
$119
|
|
2021
|
$119
|
|
2022
|
$117
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6)
Recent
Accounting Pronouncements
In March 2016, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU)
2016-09,
Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment
Accounting
(ASU
2016-09)
.
The objective of this update is to simplify
several aspects of the accounting for employee share-based
payments. Under this guidance all excess tax benefits
(“windfalls”) and deficiencies
(“shortfalls”) related to employee stock compensation
are recognized within income tax expense. Under prior guidance
windfalls were recognized in paid-in capital and shortfalls were
only recognized to the extent they exceeded the pool of windfall
tax benefits. The ASU also requires companies to classify cash
flows resulting from employee share-based payments, including the
additional tax benefits or expenses related to the vesting or
settlement of share-based awards, as cash flows from operating
activities. These items were previously included as cash flows from
financing activities. ASU 2016-09 is effective for fiscal years
beginning after December 15, 2016, including interim periods within
those fiscal years. Early adoption is permitted. We elected to
adopt ASU 2016-09 during the second quarter of 2016 and are
therefore required to report the impacts as though the ASU had been
adopted on January 1, 2016. As a result of the adoption, a tax
benefit of $623,000 was recorded in the second quarter of 2016
reflecting the excess tax benefits. The adoption also impacted the
computation of diluted shares outstanding for all 2016 reporting
periods. First quarter of 2016 net income per diluted share was
restated to $3.74 from $3.76. There was no restatement necessary
for cash flows from operating activities or cash flows from
financing activities in the previous 2016 period. The adoption was
on a prospective basis and therefore had no impact on years prior
to 2016.
No tax
benefit was recorded in the third quarter of 2017. In the first
nine months of 2017 we recorded a tax benefit of $5.3 million,
reflecting the excess tax benefits, resulting in a $2.83 per share
favorable effect on the net income per diluted
share.
In January 2016, the FASB issued ASU
2016-01,
Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
The main objective of this update is to enhance
the reporting model for financial instruments in order to provide
users of financial statements with more decision-useful
information. The new guidance addresses certain aspects of
recognition, measurement, presentation, and disclosure of financial
instruments. This ASU is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal
years. We are currently evaluating the new guidance to determine
the full impact it may have on our consolidated financial
statements. We anticipate any impact in accounting changes to be
limited to our equity investment that is classified as an available
for sale investment in our consolidated balance sheets. We also
anticipate disclosure changes as a result of this standard when
effective.
In November 2015, the FASB issued ASU
2015-17,
Balance Sheet Classification
of Deferred Taxes
(ASU 2015-17)
which requires that deferred tax liabilities and assets be
classified as noncurrent on the balance sheet. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as a
single amount is not affected by this guidance. ASU 2015-17
is effective for annual and interim periods beginning after
December 15, 2016 but early application is permitted and the
guidance may be applied either prospectively to all deferred tax
liabilities and assets or retrospectively to all periods
presented. We elected to adopt this ASU in the first quarter
of 2017 on a retrospective basis. Amounts reclassified from
“Deferred income taxes” to “Other non-current
liabilities” were $651,000 as of December 31, 2016.The
adoption did not have a material impact on our consolidated
financial statements.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2014, the FASB issued ASU 2014-09,
Revenue from
Contracts with Customers
(ASU
2014-09). ASU 2014-09 requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. ASU 2014-09 will replace
most existing revenue recognition guidance in United States
Generally Accepted Accounting Principles when it becomes effective.
In July 2015, the FASB voted to delay the effective date of ASU
2014-09 by one year, making it effective for fiscal years, and
interim periods within those years, beginning after December 15,
2017, with early adoption permitted as of the original effective
date. ASU 2014-09 permits the use of either the retrospective or
cumulative effect transition method. Based on our evaluation, we
will adopt the requirements of the new standard on January 1, 2018,
but have not yet selected a transition method for adoption.
Presented below is the status of the process we have utilized for
the adoption of the new standard and the significant implementation
matters addressed:
●
We
established a cross-functional project management implementation
team to assess all potential impacts of this standard. This team
identified significant contracts and relationships and assessed the
impact of the new standard on those contracts.
●
We
evaluated the contract provisions and performed a comparison of
historical accounting policies and practices to the requirements of
the new standard (including the related qualitative disclosures
regarding the potential impact of the effects of the accounting
policies we expect to apply), and a comparison to our current
revenue recognition policies is in process.
●
We
are currently reviewing our current accounting policies and
practices to identify potential differences that would result from
the application of this standard.
●
We
are determining key factors from the five step process to recognize
revenue as prescribed by the new standard that may be applicable to
our business.
We
expect to complete this process prior to the filing of, and make
disclosures in, our Form 10-K for the fiscal year ended December
31, 2017.
Based
on our evaluation, we determined no significant changes are
required to our business processes, systems and controls to
effectively report revenue recognition under the new standard.
Adoption of the new standard is not expected to materially change
the timing or amount of revenue recognized in our Consolidated
Financial Statements.
From
time to time, new accounting standards updates applicable to us are
issued by the FASB which we will adopt as of the specified
effective date. Unless otherwise discussed, we believe the impact
of recently issued standards updates that are not yet effective
will not have a material impact on our consolidated financial
statements upon adoption.
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
We
develop and manufacture products primarily for medical
applications. We market components to other equipment manufacturers
for incorporation in their products and sell finished devices to
physicians, hospitals, clinics and other treatment centers. Our
medical products primarily serve the fluid delivery,
cardiovascular, and ophthalmology markets. Our other medical and
non-medical products include instrumentation and disposables used
in dialysis and valves and inflation devices used in marine and
aviation safety products.
Our
products are used in a wide variety of applications by numerous
customers. We encounter competition in all of our markets and
compete primarily on the basis of product quality, price,
engineering, customer service and delivery time.
Our
strategy is to provide a broad selection of products in the areas
of our expertise. Research and development efforts are focused on
improving current products and developing highly-engineered
products that meet customer needs and serve niche markets with
meaningful sales potential. Proposed new products may be subject to
regulatory clearance or approval prior to commercialization and the
time period for introducing a new product to the marketplace can be
unpredictable. We also focus on controlling costs by investing in
modern manufacturing technologies and controlling purchasing
processes. We have been successful in consistently generating cash
from operations and have used that cash to reduce indebtedness, to
fund capital expenditures, to repurchase stock and to pay
dividends.
Our
strategic objective is to further enhance our position in our
served markets by:
●
Focusing on
customer needs;
●
Expanding existing
product lines and developing new products;
●
Manufacturing
products to exacting quality standards; and
●
Preserving and
fostering a collaborative and entrepreneurial culture.
For the
three months ended September 30, 2017, we reported revenues of
$37.9 million, operating income of $11.5 million and net income of
$8.0 million, up less than 1 percent, up 5 percent and up 5
percent, respectively, from the three months ended September 30,
2016. For the nine months ended September 30, 2017, we reported
revenues of $112.6 million, operating income of $33.0 million and
net income of $27.9 million, up 2 percent, up 5 percent and up 27
percent, respectively, from the nine months ended September 30,
2016.
Results
for the three months ended September 30, 2017
Consolidated net
income totaled $8.0 million, or $4.30 per basic and $4.29 per
diluted share, in the third quarter of 2017. This is compared with
consolidated net income of $7.6 million, or $4.17 per basic and
$4.10 per diluted share, in the third quarter of 2016. The income
per basic share computations are based on weighted average basic
shares outstanding of 1,852,000 in the 2017 period and 1,825,000 in
the 2016 period. The income per diluted share computations are
based on weighted average diluted shares outstanding of 1,857,000
in the 2017 period and 1,858,000 in the 2016 period.
Consolidated
revenues of $37.9 million for the third quarter of 2017 were less
than 1 percent higher than revenues of $37.8 million for the third
quarter of 2016.
Revenues
by product line were as follows (in thousands):
|
|
Three Months ended September 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$
16,083
|
$
16,573
|
|
Cardiovascular
|
12,837
|
11,389
|
|
Ophthalmology
|
3,595
|
4,386
|
|
Other
|
5,388
|
5,487
|
|
Total
|
$
37,903
|
$
37,835
|
Cost of
goods sold of $19.5 million for the third quarter of 2017 was 4
percent lower than cost of goods sold of $20.2 million for the
third quarter of 2016 primarily due to a favorable product sales
mix, improved manufacturing efficiencies and the impact of
continued cost improvement projects. Our cost of goods sold in the
third quarter of 2017 was 51.4 percent of revenues compared with
53.4 percent of revenues in the third quarter of 2016.
Gross
profit of $18.4 million in the third quarter of 2017 was $781,000,
or 4 percent, higher than in the comparable 2016 period. Our gross
profit percentage in the third quarter of 2017 was 48.6 percent of
revenues compared with 46.6 percent of revenues in the third
quarter of 2016. The increase in gross profit in the 2017 period
compared to the 2016 period was primarily related to the favorable
product sales mix, improved manufacturing efficiencies and cost
improvement projects mentioned above.
Our
third quarter 2017 operating expenses of $6.9 million were $278,000
higher than the operating expenses for the third quarter of 2016.
This increase was attributable to a $473,000 increase in General
and Administrative, or G&A, expenses and a $220,000 increase in
Selling expenses partially offset by a $415,000 decrease in
Research and Development, or R&D, expenses. The increase in
G&A expenses for the third quarter of 2017 was principally
attributable to increased compensation and outside services. The
increase in Selling expenses was principally attributable to
increased commissions, compensation, outside services and travel
costs. The decrease in R&D expenses was primarily related to
decreased outside services.
Operating income in
the third quarter of 2017 increased $503,000 to $11.5 million, a 5
percent increase compared to our operating income in the quarter
ended September 30, 2016. Operating income was 30 percent of
revenues for the third quarter of 2017 compared to 29 percent of
revenues for the third quarter of 2016.
Interest and
dividend income in the third quarter of 2017 was $287,000, compared
with $106,000 for the same period in the prior year. Increased
levels of investment, increased interest rates and higher dividends
were the primary reasons for the increase.
Income
tax expense for the third quarter of 2017 was $3.8 million compared
to income tax expense of $3.5 million for the same period in the
prior year. The effective tax rate for the third quarter of 2017
was 32.3 percent, compared with 31.3 percent for the third quarter
of 2016. We expect the effective tax rate for the remainder of 2017
to be approximately 32.0 percent.
Results
for the nine months ended September 30, 2017
Consolidated net
income totaled $28.0 million, or $15.16 per basic and $15.06 per
diluted share, in the first nine months of 2017. This is compared
with consolidated net income of $22.0 million, or $12.07 per basic
and $11.86 per diluted share, in the first nine months of 2016. The
income per basic share computations are based on weighted average
basic shares outstanding of 1,844,000 in the 2017 period and
1,823,000 in the 2016 period. The income per diluted share
computations are based on weighted average diluted shares
outstanding of 1,856,000 in both the 2017 and 2016
periods.
Consolidated
revenues of $112.6 million for the first nine months of 2017 were 2
percent higher than revenues of $110.2 million for the first nine
months of 2016. This increase was primarily attributable to
increased volumes of our fluid delivery and cardiovascular
products.
Revenues
by product line were as follows (in thousands):
|
|
Nine Months ended September 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$
49,718
|
$
47,183
|
|
Cardiovascular
|
36,523
|
35,649
|
|
Ophthalmology
|
11,030
|
12,417
|
|
Other
|
15,300
|
14,944
|
|
Total
|
$
112,571
|
$
110,193
|
Cost of
goods sold of $57.8 million for the first nine months of 2017 was
$52,000 higher than in the comparable 2016 period. The primary
contributors to the increase in our cost of goods sold were
increased sales and manufacturing inefficiencies in the first
quarter of 2017 partially offset by a favorable product sales mix.
Our cost of goods sold in the first nine months of 2017 was 51.4
percent of revenues compared with 52.4 percent of revenues in the
first nine months of 2016.
Gross
profit of $54.7 million in the first nine months of 2017 was $2.3
million, or 4 percent, higher than in the comparable 2016 period.
Our gross profit percentage in the first nine months of 2017 was
48.6 percent of revenues compared with 47.6 percent of revenues in
the first nine months of 2016. The increase in gross profit
percentage in the 2017 period compared to the 2016 period was
primarily related to a favorable product sales mix partially offset
by manufacturing inefficiencies in the first quarter of
2017.
Our
first nine months 2017 operating expenses of $21.7 million were
$860,000 higher than the operating expenses for the first nine
months of 2016. This increase was comprised of a $948,000 increase
in G&A and a $432,000 increase in Selling expenses partially
offset by a $520,000 decrease in R&D expenses. The increase in
G&A expenses for the first nine months of 2017 was principally
attributable to increased compensation and outside services
partially offset by decreased travel and depreciation. The increase
in Selling expenses was primarily related to increased travel,
commissions, outside services and compensation partially offset by
reduced promotion costs. The decrease in R&D costs was
primarily related to decreased outside services and
supplies.
Operating income in
the first nine months of 2017 increased $1.5 million to $33.0
million, a 5 percent increase from our operating income in the nine
months ended September 30, 2016. Operating income was 29 percent of
revenues in the first nine months of both 2017 and
2016.
Interest and
dividend income for the first nine months of 2017 was $806,000,
compared with $315,000 for the same period in the prior year.
Increased levels of investment, increased interest rates and higher
dividends were the primary reasons for the increase.
In
2016, our other income (expense) was primarily related to an
additional impairment loss on one of our previously impaired
long-term corporate bonds. In the first quarter of 2016, the market
value of this corporate bond further declined. Therefore, we
recorded an additional impairment loss on this bond of $345,000,
reducing the carrying value of the bond to its market value at
March 31, 2016. This bond was sold in the second quarter of
2016.
Income
tax expense for the first nine months of 2017 was $5.8 million
compared to income tax expense of $9.5 million for the same period
in the prior year. The effective tax rate for the first nine months
of 2017 was 17.3 percent, compared with 30.2 percent for the first
nine months of 2016. The effective tax rate for the first nine
months of 2017 was favorably impacted by a tax benefit of $5.3
million related to excess tax benefits from stock compensation as a
result of the adoption of ASU 2016-09.
Liquidity
and Capital Resources
At
December 31, 2016, we had a $40.0 million revolving credit facility
with a money center bank that could be utilized for the funding of
operations and for major capital projects or acquisitions, subject
to certain limitations and restrictions. We had no outstanding
borrowings under our credit facility at December 31, 2016. At
December 31, 2016, we were in compliance with all financial
covenants in the credit facility.
On
February 28, 2017, we replaced the revolving credit facility with a
new $75.0 million revolving credit facility with the same bank. The
new credit facility has similar operational, covenant and
collateral characteristics as the prior facility. Interest under
the new credit facility is to be assessed at one, two, three or
six-month LIBOR, as selected by us, plus .875 percent. The new
credit facility allows us to make advances until February 28, 2022.
We had no outstanding borrowings under our new credit facility at
September 30, 2017. The new credit facility contains various
restrictive covenants, none of which is expected to impact our
liquidity or capital resources. At September 30, 2017, we were in
compliance with all financial covenants. We believe the bank
providing the credit facility is highly-rated and that the entire
$75.0 million under the credit facility is currently available to
us.
At
September 30, 2017, we had a total of $70.1 million in cash and
cash equivalents, short-term investments and long-term investments,
an increase of $16.0 million from December 31, 2016. The principal
contributor to this increase was operating results.
Cash
flows from operating activities of $37.1 million for the nine
months ended September 30, 2017 were primarily comprised of net
income plus the net effect of non-cash expenses, increases to
accrued income and other taxes, accounts payable and accrued
expenses partially offset by increases to accounts receivable.
During the first nine months of 2017, we expended $7.6 million for
the addition of property and equipment, $46.7 million for the
purchase of investments, $7.7 million for shares tendered on
stock-based compensation for tax withholding and $6.1 million for
dividends.
During the
same period, maturities of investments generated $32.0
million.
At
September 30, 2017, we had working capital of $99.8 million,
including $21.0 million in cash and cash equivalents and $39.0
million in short-term investments. The $14.7 million increase in
working capital during the first nine months of 2017 was primarily
related to increases in short-term investments, accounts receivable
and cash and cash equivalents. This increase was partially offset
by increases in accrued income and other taxes and increases in
accounts payable and accrued liabilities. The net increase in cash
and short-term investments was primarily related to operating
results. The increase in accounts receivable was primarily related
to increased revenues for the third quarter of 2017 as compared to
the fourth quarter of 2016. The increase in accrued income and
other taxes is primarily related to accrued state income taxes. The
increase in accounts payable and accrued liabilities is primarily
related to timing of payments for replenishment of inventories, and
operating expenditures.
We
believe that our $70.1 million in cash, cash equivalents,
short-term investments and long-term investments, along with cash
flows from operations and available borrowings of up to $75.0
million under our new credit facility, will be sufficient to fund
our cash requirements for at least the foreseeable future,
including the costs associated with the planned expansion of one of
our manufacturing facilities. We believe that our strong financial
position would allow us to access equity or debt financing should
that be necessary. Additionally, we believe that our cash and cash
equivalents, short-term investments and long-term investments, as a
whole, will continue to increase during the remainder of
2017.
Forward-Looking Statements
Statements
in this Management’s Discussion and Analysis and elsewhere in
this Quarterly Report on Form 10-Q that are forward looking are
based upon current expectations, and actual results or future
events may differ materially. Therefore, the inclusion of such
forward-looking information should not be regarded as a
representation by us that our objectives or plans will be achieved.
Such statements include, but are not limited to, our effective tax
rate for the remainder of 2017, our ability to fund our cash
requirements for the foreseeable future with our current assets,
long-term investments, cash flow and borrowings under the credit
facility, the impact of the restrictive covenants in our credit
facility on our liquidity and capital resources, our access to
equity and debt financing, and the increase in cash, cash
equivalents, and investments during the remainder of 2017. Words
such as “expects,” “believes,”
“anticipates,” “intends,”
“should,” “plans,” and variations of such
words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements contained
herein involve numerous risks and uncertainties, and there are a
number of factors that could cause actual results or future events
to differ materially, including, but not limited to, the following:
changing economic, market and business conditions; acts of war or
terrorism; the effects of governmental regulation; the impact of
competition and new technologies; slower-than-anticipated
introduction of new products or implementation of marketing
strategies; implementation of new manufacturing processes or
implementation of new information systems; our ability to protect
our intellectual property; changes in the prices of raw materials;
changes in product mix; intellectual property and product liability
claims and product recalls; the ability to attract and retain
qualified personnel; and the loss of, or any material reduction in
sales to, any significant customers. In addition, assumptions
relating to budgeting, marketing, product development and other
management decisions are subjective in many respects and thus
susceptible to interpretations and periodic review which may cause
us to alter our marketing, capital expenditures or other budgets,
which in turn may affect our results of operations and financial
condition.
Item 3.Quantitative and Qualitative Disclosures About Market
Risk
For
the quarter ended September 30, 2017, we did not experience any
material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented in our 2016 Form
10-K/A.
Item 4.
Controls and Procedures
Our
management, with the participation of our Chief Executive Officer
and our Chief Financial Officer, evaluated our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of September 30, 2017. Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are
effective. There were no changes in our internal control over
financial reporting for the quarter ended September 30, 2017 that
have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.